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eBay Inc. Reports Strong Fourth Quarter and Full Year 2012 Results

SAN JOSE, Calif. --(Business Wire)--

eBay Inc., a global commerce platform and payments leader (NASDAQ:EBAY),
today reported that revenue for the fourth quarter ended December
31, 2012 increased 18% to $4.0 billion, compared to the same period of
2011. The company reported fourth quarter net income on a GAAP basis of
$751 million, or $0.57 per diluted share, and net income on a non-GAAP
basis of $927 million, or $0.70 per diluted share. The increase in
non-GAAP earnings per diluted share was driven by double digit user
growth across the portfolio, strong gains in mobile adoption, and
accelerating growth in the company's Marketplaces business, reflecting a
19% increase in U.S. gross merchandise volume (GMV), excluding vehicles.

For the full year, revenue increased 21% to $14.1 billion, compared to
2011. The company reported net income on a GAAP basis of $2.6 billion,
or $1.99 per diluted share, and net income on a non-GAAP basis of $3.1
billion, or $2.36 per diluted share. eBay Inc. enabled more than $175
billion of commerce volume (ECV) in 2012, representing growth of 18%.
ECV is the total commerce and payment volume across all three business
units consisting of Marketplaces GMV, PayPal merchant services net total
payment volume and GSI global ecommerce (GeC) merchandise sales.

"We had a great finish to an excellent year, with fourth quarter results
exceeding our expectations," said John Donahoe, eBay Inc. President and
CEO. "eBay Marketplaces in particular had a terrific fourth quarter,
with growth in the U.S. accelerating three points, outpacing ecommerce."

"Mobile continues to rewrite the commerce playbook, and we continue to
be a mobile commerce and payments leader," Donahoe said. "eBay mobile
finished the year with $13 billion in volume - more than double the
prior year - and PayPal mobile handled almost $14 billion in payment
volume, more than triple the prior year. In 2013, we expect each to
exceed $20 billion."

"Web-enabled multichannel commerce is evolving quickly, and consumer
shopping behavior is changing rapidly. Our focus is on being a global
commerce leader in this new environment, connecting buyers and sellers
everywhere, and being a preferred multichannel partner of choice for
retailers and brands of all sizes."

The company's PayPal business continued to expand its leadership
position in global payments. PayPal's active account growth accelerated
to 15% and ended the year with approximately 123 million registered
accounts. PayPal added nearly 2 million accounts a month in the fourth
quarter, representing the company's fastest active account growth rate
in years. Net total payment volume (TPV) increased 24%, producing
revenue growth of 24%. Key drivers included continued merchant and
consumer adoption coupled with geographic expansion. PayPal's mobile
payment volume reached nearly $14 billion in 2012, up more than 250%
over the prior year, as more consumers used their smartphones and
tablets to pay online. In addition, PayPal continued to invest in future
growth initiatives and made significant progress towards the rollout of
its offline payment solutions. Twenty-three major retailers adopted
PayPal's offline payment solutions in 18,000 locations in 2012.

The company's Marketplaces business delivered a record $2 billion
revenue in the fourth quarter, propelled by strong performance in the
U.S. Revenue for the full year was driven by continued investments in
the customer experience and efforts to bring the world's inventory to
global buyers. Active user growth accelerated two points to 12%, driven
by mobile, site enhancements designed to streamline the shopping
experience on eBay and emerging markets. Fixed price GMV, excluding
vehicles, increased 21% and contributed to a 16% increase in GMV,
excluding vehicles. U.S. GMV growth, excluding vehicles, accelerated
three points to 19%. Mobile commerce volume in 2012 grew more than 120%
to $13 billion driven primarily by increased adoption of eBay's mobile
apps and increased engagement from product innovation. eBay's suite of
mobile apps attracted more than 4 million new customers in 2012.

GSI revenue for the quarter increased 10% to $398 million driven
primarily by a 17% increase in GeC merchandise sales. Same store sales
grew 19% outpacing ecommerce. For the full year, GSI shipped a record
146 million units for its clients. GSI contributed revenue of $1.1
billion in 2012, as GSI continued to grow its relationships, investing
and driving value to its clients through eBay Inc. technology solutions,
including mobile app development, buy online and pick up in-store and
mobile express checkout.

Fourth Quarter and Full Year 2012 Financial Highlights
(presented in millions, except per share data and percentages)

Fourth Quarter

Full Year

2012

2011

Change

2012

2011

Change

GAAP

Net revenue

$3,992

$3,380

$612

18%

$14,072

$11,652

$2,420

21%

Net income*

$751

$1,980

$(1,229)

(62%)

$2,609

$3,229

$(620)

(19)%

Earnings per diluted share

$0.57

$1.51

$(0.94)

(62%)

$1.99

$2.46

$(0.47)

(19)%

Non-GAAP

Net income

$927

$789

$138

17%

$3,100

$2,667

$433

16%

Earnings per diluted share

$0.70

$0.60

$0.10

17%

$2.36

$2.03

$0.33

16%

Fourth Quarter

Full Year

2012

2011

Change

2012

2011

Change

Business Units

Payments

Net revenue

$1,541

$1,240

$301

24%

$5,574

$4,412

$1,162

26%

Net total payment volume

$41,471

$33,372

$8,099

24%

$144,937

$118,758

$26,179

22%

Merchant Services

$28,026

$21,959

$6,067

28%

$97,277

$77,700

$19,577

25%

On eBay

$13,444

$11,413

$2,031

18%

$47,660

$41,058

$6,602

16%

Marketplaces

Net revenue

$2,050

$1,772

$278

16%

$7,398

$6,642

$756

11%

Gross merchandise volume (excl. vehicles)

$19,105

$16,490

$2,615

16%

$67,763

$60,332

$7,431

12%

U.S.

$7,338

$6,157

$1,181

19%

$26,424

$22,866

$3,558

16%

International

$11,767

$10,333

$1,434

14%

$41,339

$37,466

$3,873

10%

GSI

Net revenue**

$398

$364

$34

10%

$1,083

$590

N/A

N/A

GeC Merchandise Sales

$1,595

$1,362

$233

17%

$3,682

$2,046

N/A

N/A

* GAAP net income for the fourth quarter of 2011 reflects the gain on
the sale of the company's remaining investment in Skype.** Full
year 2011 results reflect net revenue attributable to the GSI segment
for the period from June 17, 2011 (the date that the acquisition was
completed) through December 31, 2011.

Other Selected Financial Results

Operating margin - GAAP operating margin decreased to 21.9% for the
fourth quarter of 2012, compared to 22.3% for the same period last
year. Non-GAAP operating margin decreased to 28.5% for the quarter,
compared to 28.7% for the same period last year. The decrease in GAAP
operating margin and non-GAAP operating margin was due primarily to
the impact of acquisitions and business mix.

Taxes - The GAAP effective tax rate for the fourth quarter of 2012 was
14%, compared to 19% for the fourth quarter of 2011. For the fourth
quarter of 2012, the non-GAAP effective tax rate was 18% compared to
20% for the fourth quarter of 2011. The decrease in the GAAP effective
tax rate was due primarily to U.S. taxes on the sale of the remaining
equity interest in Skype in the fourth quarter of 2011.

Cash flow - The company generated $1.4 billion of operating cash flow
and $1.1 billion of free cash flow during the fourth quarter. For the
full year the company generated $3.8 billion of operating cash flow
and $2.6 billion of free cash flow.

Stock repurchase program - The company repurchased approximately $256
million of its common stock in the fourth quarter.

PayPal customer balances - The company now holds PayPal U.S. customer
balances directly, rather than as a custodian for its customers. As a
result, PayPal U.S. customer balances and the associated customer
liability are now reflected on the company's consolidated balance
sheet, contributing to the $8.1 billion balance in funds receivable
and customer accounts at December 31, 2012.

Restructuring - The company incurred restructuring charges of $31
million during the fourth quarter of 2012 related to work force
reductions designed to simplify and streamline its organization and
strengthen the overall competitiveness of its existing businesses.

Business Outlook

First quarter 2013 - eBay expects net revenues in the range of $3,650
- $3,750 million with GAAP earnings per diluted share in the range of
$0.48 - $0.50 and non-GAAP earnings per diluted share in the range of
$0.60 - $0.62.

Full year 2013 - eBay expects net revenues in the range of $16,000 -
$16,500 million with GAAP earnings per diluted share in the range of
$2.23 - $2.29 and non-GAAP earnings per diluted share in the range of
$2.70 - $2.75.

Quarterly Conference Call

eBay Inc. will host a conference call to discuss fourth quarter and full
year 2012 results at 2:00 p.m. Pacific Time today. A live webcast of the
conference call, together with a slide presentation that includes
supplemental financial information and reconciliations of certain
non-GAAP measures to their nearest comparable GAAP measures, can be
accessed through the company's Investor Relations website at http://investor.ebayinc.com.
In addition, an archive of the webcast will be accessible for 90 days
through the same link.

About eBay Inc.

Founded in 1995 in San Jose, Calif., eBay Inc. (NASDAQ:EBAY) is a global
commerce platform and payments leader connecting millions of buyers and
sellers. We do so through eBay, the world's largest online marketplace,
which allows users to buy and sell in nearly every country on earth;
through PayPal, which enables individuals and businesses to securely,
easily and quickly send and receive digital payments; and through GSI,
which facilitates ecommerce, multichannel retailing and digital
marketing for global enterprises. X.commerce harnesses the developer
community of Magento, an ecommerce platform, by providing technology
solutions and eBay Inc. capabilities to merchants of all sizes,
supporting eBay Inc.'s mission of enabling commerce. We also reach
millions through specialized marketplaces such as StubHub, the world's
largest ticket marketplace, and eBay classifieds sites, which together
have a presence in more than 1,000 cities around the world. For more
information about the company and its global portfolio of online brands,
visit www.ebayinc.com.

Presentation

All growth rates represent year over year comparisons, except as
otherwise noted. All amounts in tables are presented in U.S. dollars,
rounded to the nearest millions, except as otherwise noted. As a result,
certain amounts may not sum or recalculate using the rounded dollar
amounts provided.

Non-GAAP Financial Measures

This press release includes the following financial measures defined as
"non-GAAP financial measures" by the Securities and Exchange Commission,
or SEC: non-GAAP net income, non-GAAP earnings per diluted share,
non-GAAP operating margin, non-GAAP effective tax rate and free cash
flow. These measures may be different from non-GAAP financial measures
used by other companies. The presentation of this financial information,
which is not prepared under any comprehensive set of accounting rules or
principles, is not intended to be considered in isolation or as a
substitute for the financial information prepared and presented in
accordance with generally accepted accounting principles. For a
reconciliation of these non-GAAP financial measures to the nearest
comparable GAAP measures, see "Business Outlook," "Non-GAAP Measures of
Financial Performance," "Reconciliation of GAAP Operating Margin to
Non-GAAP Operating Margin," "Reconciliation of GAAP Net Income to
Non-GAAP Net Income and Reconciliation of GAAP Effective Tax Rate to
Non-GAAP Effective Tax Rate" and "Reconciliation of Operating Cash Flow
to Free Cash Flow" included in this press release.

Forward-Looking Statements

This press release contains forward-looking statements relating to,
among other things, the future performance of eBay and its consolidated
subsidiaries that are based on the company's current expectations,
forecasts and assumptions and involve risks and uncertainties. These
statements include, but are not limited to, statements regarding
expected financial results for the first quarter and full year 2013, and
the future growth in the Payments, Marketplaces and GSI businesses,
mobile payments and mobile commerce. The company's actual results could
differ materially from those predicted or implied and reported results
should not be considered as an indication of future performance. Factors
that could cause or contribute to such differences include, but are not
limited to: changes in political, business and economic conditions,
including any European or general economic downturn or crisis and any
conditions that affect ecommerce growth; fluctuations in foreign
currency exchange rates; the company's ability to profitably integrate,
manage and grow businesses that have been acquired recently or may be
acquired in the future; the company's need to successfully react to the
increasing importance of mobile payments and mobile commerce and the
increasing social aspect of commerce; the company's ability to deal with
the increasingly competitive ecommerce environment, including
competition for its sellers from other trading sites and other means of
selling, and competition for its buyers from other merchants, online and
offline; the company's need to manage an increasingly large enterprise
with a broad range of businesses of varying degrees of maturity and in
many different geographies; the effect of management changes and
business initiatives; the company's need and ability to manage other
regulatory, tax and litigation risks as its services are offered in more
jurisdictions and applicable laws become more restrictive; any changes
the company may make to its product offerings; the competitive,
regulatory, credit card association-related and other risks specific to
PayPal and Bill Me Later, especially as PayPal continues to expand
geographically and introduce new products and as new laws and
regulations related to financial services companies come into effect;
the company's ability to timely upgrade and develop its systems,
infrastructure and customer service capabilities, including GSI's v.11
initiative, at reasonable cost; and the company's ability to maintain
site stability and performance on all of its sites while adding new
products and features in a timely fashion. The forward-looking
statements in this release do not include the potential impact of any
acquisitions or divestitures that may be announced and/or completed
after the date hereof.

More information about factors that could affect the company's operating
results is included under the captions "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the company's most recent annual report on Form 10-K and
subsequent quarterly reports on Form 10-Q, copies of which may be
obtained by visiting the company's Investor Relations website at http://investor.ebayinc.com
or the SEC's website at www.sec.gov.
Undue reliance should not be placed on the forward-looking statements in
this release, which are based on information available to the company on
the date hereof. eBay assumes no obligation to update such statements.

Revenues are attributed to U.S. and international geographies
primarily based upon the country in which the seller, payment
recipient, customer, website that displays advertising, or other
service provider, as the case may be, is located.

eBay Inc.

Unaudited Payments Supplemental Operating Data

Three Months Ended

December 31,

September 30,

June 30,

March 31,

December 31,

2012

2012

2012

2012

2011

(In millions, except percentages)

Active registered accounts (1)

122.7

117.4

113.2

109.8

106.3

Current quarter vs prior quarter

5

%

4

%

3

%

3

%

3

%

Current quarter vs prior year quarter

15

%

14

%

13

%

12

%

13

%

Net number of payments (2)

691.7

589.2

564.8

555.7

548.1

Current quarter vs prior quarter

17

%

4

%

2

%

1

%

19

%

Current quarter vs prior year quarter

26

%

28

%

31

%

31

%

30

%

Net total payment volume (3)

$

41,471

$

35,159

$

34,451

$

33,857

$

33,372

Current quarter vs prior quarter

18

%

2

%

2

%

1

%

14

%

Current quarter vs prior year quarter

24

%

20

%

20

%

24

%

24

%

Merchant Services net total payment volume as % of net total
payment volume

68

%

67

%

67

%

66

%

66

%

Transaction rates

Take rate

3.72

%

3.89

%

3.94

%

3.87

%

3.71

%

Transaction expense

1.03

%

1.07

%

1.07

%

1.07

%

1.04

%

Loss rate

0.28

%

0.30

%

0.26

%

0.26

%

0.27

%

Transaction margin (4)

64.7

%

64.8

%

66.3

%

65.6

%

64.8

%

Loan portfolio rates

Risk adjusted margin (5)

15.6

%

16.5

%

15.5

%

16.8

%

16.9

%

Net charge-off rate (6)

5.3

%

4.9

%

4.6

%

4.5

%

4.4

%

90-day delinquency rate (7)

2.7

%

2.9

%

2.5

%

2.4

%

2.4

%

(1)

All registered accounts that successfully sent or received at least
one payment or payment reversal through the PayPal system or Bill Me
Later accounts that are currently able to transact and that received
a statement within the last 12 months.

(2)

Number of payments, net of payment reversals, successfully completed
through our Payments networks and Zong, excluding PayPal's payments
gateway business, and on Bill Me Later accounts during the quarter.

(3)

Total dollar volume of payments, net of payment reversals,
successfully completed through our Payments networks and Zong,
excluding PayPal's payment gateway business, and on Bill Me Later
accounts during the period.

(4)

Transaction Margin calculation has been adjusted to include total
revenues (including revenue from credit) less transaction expense
(including credit cost of funds) less transaction loss (including
credit loan losses), divided by global take rate (based on global
total revenues divided by total TPV).

(5)

The risk adjusted margin represents the annualized ratio of Bill Me
Later revenue, excluding contra-revenue incentives to customers or
merchants, less cost of funds, and less net credit and fraud losses
relative to average loans receivable for the quarter.

(6)

Net charge-off rate represents the annualized ratio of Bill Me Later
net credit losses relative to average loans receivable for the
quarter.

(7)

90-day delinquency rate is the ratio of Bill Me Later end of period
account balances that have missed three or more consecutive payments
relative to total ending loan receivables.

eBay Inc.

Unaudited eBay Marketplaces Supplemental Operating Data

Three Months Ended

December 31,

September 30,

June 30,

March 31,

December 31,

2012

2012

2012

2012

2011

(In millions, except percentages)

Active Users (1)

112.3

108.3

104.8

102.4

100.4

Current quarter vs prior quarter

4

%

3

%

2

%

2

%

2

%

Current quarter vs prior year quarter

12

%

10

%

8

%

7

%

6

%

Gross Merchandise Volume (excluding vehicles) (2)

$

19,105

$

16,281

$

16,171

$

16,206

$

16,490

Current quarter vs prior quarter

17

%

1

%

-

(2

)%

12

%

Current quarter vs prior year quarter

16

%

11

%

10

%

12

%

10

%

Vehicles Gross Merchandise Volume (3)

$

1,727

$

1,994

$

2,021

$

1,871

$

1,864

Current quarter vs prior quarter

(13

)%

(1

)%

8

%

-

(13

)%

Current quarter vs prior year quarter

(7

)%

(7

)%

(10

)%

(9

)%

(3

)%

Fixed Price Trading (4) as % of total gross merchandise volume

68

%

66

%

65

%

64

%

64

%

eBay's classifieds websites and Shopping.com are not included in
these metrics.

(1)

All users, excluding users of Half.com, StubHub, and our Korean
subsidiaries (Gmarket and eBay Auction Co.), who bid on, bought,
listed or sold an item within the previous 12-month period. Users
may register more than once, and as a result, may have more than one
account.

(2)

Total value of all successfully closed items between users on eBay
Marketplaces trading platforms during the quarter, regardless of
whether the buyer and seller actually consummated the transaction,
excluding vehicles gross merchandise volume.

(3)

Total value of all successfully closed vehicle transactions between
users on eBay Marketplaces trading platforms during the quarter,
regardless of whether the buyer and seller actually consummated the
transaction.

(4)

Primarily, total gross merchandise volume related to eBay's "Buy It
Now" feature on eBay Marketplaces trading platforms relative to
total gross merchandise volume during the quarter.

eBay Inc.

Unaudited GSI Supplemental Operating Data

Three Months Ended

December 31,

September 30,

June 30,

March 31,

December 31,

2012

2012

2012

2012

2011

(In millions, except percentages)

GeC Merchandise Sales (1)

$

1,595

$

698

$

674

$

715

$

1,362

Current quarter vs prior quarter

129

%

4

%

(6

)%

(48

)%

127

%

Current quarter vs prior year quarter

17

%

16

%

N/A

N/A

N/A

(1)

Represents the retail value of all sales transactions, inclusive of
freight charges and net of allowance for returns and discounts,
which flow through the GSI ecommerce services platform, whether we
record the full amount of such transaction as a product sale or a
percentage of such transaction as a service fee.

eBay Inc.Business Outlook(In Millions,
Except Per Share Amounts)

The guidance figures provided below and elsewhere in this press
release are forward-looking statements, reflect a number of estimates,
assumptions and other uncertainties, and are approximate in nature
because eBay's future performance is difficult to predict. Such guidance
is based on information available on the date of this press release, and
eBay assumes no obligation to update it.

eBay's future performance involves risks and uncertainties, and the
company's actual results could differ materially from the information
below and elsewhere in this press release. Some of the factors that
could affect the company's operating results are set forth under the
caption "Forward-Looking Statements" above in this press release. More
information about factors that could affect eBay's operating results is
included under the captions "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in its
most recent annual report on Form 10-K and subsequent quarterly reports
on Form 10-Q, copies of which may be obtained by visiting the company's
investor relations website at http://investor.ebayinc.com
or the SEC's website at www.sec.gov.

Three Months Ended

March 31, 2013

(In millions, except per share amounts)

GAAP

Non-GAAP (a)

Net Revenue

$3,650 - $3,750

$3,650 - $3,750

Diluted EPS

$0.48 - $0.50

$0.60 - $0.62

Twelve Months Ended

December 31, 2013

(In millions, except per share amounts)

GAAP

Non-GAAP (b)

Net Revenue

$16,000 - $16,500

$16,000 - $16,500

Diluted EPS

$2.23 - $2.29

$2.70 - $2.75

(a)

Estimated non-GAAP amounts above for the three months ending March
31, 2013, reflect adjustments that exclude the estimated
amortization of acquired intangible assets of approximately $95-$105
million, estimated stock-based compensation expense and employer
payroll taxes on stock-based compensation expense of approximately
$130-$140 million and the accretion of a note receivable of
approximately $5 million as well as the related tax impact.

(b)

Estimated non-GAAP amounts above for the twelve months ending
December 31, 2013, reflect adjustments that exclude the estimated
amortization of acquired intangible assets of approximately
$380-$400 million, estimated stock-based compensation expense and
employer payroll taxes on stock-based compensation expense of
approximately $560-$600 million and the accretion of a note
receivable of approximately $20 million as well as the related tax
impact.

These non-GAAP measures are not in accordance with, or an alternative
to, measures prepared in accordance with GAAP and may be different from
non-GAAP measures used by other companies. In addition, these non-GAAP
measures are not based on any comprehensive set of accounting rules or
principles. Non-GAAP measures have limitations in that they do not
reflect all of the amounts associated with eBay's results of operations
as determined in accordance with GAAP. These measures should only be
used to evaluate eBay's results of operations in conjunction with the
corresponding GAAP measures.

Reconciliation to the nearest GAAP measure of all non-GAAP measures
included in this press release can be found in the tables included in
this press release.

These non-GAAP measures are provided to enhance investors' overall
understanding of the company's current financial performance and the
company's prospects for the future. Specifically, the company believes
the non-GAAP measures provide useful information to both management and
investors by excluding certain expenses, gains and losses or net
purchases of property and equipment, as the case may be, that may not be
indicative of its core operating results and business outlook. In
addition, because eBay has historically reported certain non-GAAP
results to investors, the company believes that the inclusion of
non-GAAP measures provides consistency in the company's financial
reporting.

For its internal budgeting process, and as discussed further below,
eBay's management uses financial measures that do not include
stock-based compensation expense, employer payroll taxes on stock-based
compensation, amortization or impairment of acquired intangible assets,
impairment of goodwill, significant gains or losses from the
disposal/acquisition of a business, restructuring-related charges and
the income taxes associated with the foregoing. In addition to the
corresponding GAAP measures, eBay's management also uses the foregoing
non-GAAP measures in reviewing the financial results of eBay.

Stock-based compensation expense and related employer payroll taxes.
This expense consists of expenses for stock options, restricted stock
and employee stock purchases. eBay excludes stock-based compensation
expense from its non-GAAP measures primarily because they are non-cash
expenses that management does not believe are reflective of ongoing
operating results. eBay also previously excluded its proportionate share
of Skype's stock-based compensation expense. The related employer
payroll taxes is dependent on eBay's stock price and the timing and size
of exercises by employees of their stock options and the vesting of
their restricted stock, over which management has limited to no control,
and as such management does not believe it correlates to eBay's
operation of the business.

Amortization or impairment of acquired intangible assets, impairment
of goodwill and significant gains or losses and transaction expenses
from the acquisition or disposal of a business. eBay incurs
amortization or impairment of acquired intangible assets and goodwill in
connection with acquisitions and may incur significant gains or losses
from the acquisition or disposal of a business and therefore excludes
these amounts from its non-GAAP measures. eBay also previously excluded
its proportionate share of Skype's amortization of acquired intangibles
expense. eBay also settled a legal exposure in conjunction with the
acquisition of a business and excludes this settlement payment. In
addition, eBay's results are also impacted by hedge transactions related
to unique movements of cash from significant business acquisitions or
dispositions. eBay excludes the impact of the accretion of a note
receivable associated with the disposal of certain businesses. eBay
excludes these items because management does not believe they correlate
to the ongoing operating results of eBay's business.

Restructuring. These charges consist of expenses for employee
severance and other exit and disposal costs. eBay excludes significant
restructuring charges primarily because management does not believe they
are reflective of ongoing operating results.

Tax effect of non-GAAP adjustments. This amount is used to
present stock-based compensation and the other amounts described above
on an after-tax basis consistent with the presentation of non-GAAP net
income.

In addition to the non-GAAP measures discussed above, eBay also uses
free cash flow. Free cash flow represents operating cash flows less net
purchases of property and equipment. eBay considers free cash flow to be
a liquidity measure that provides useful information to management and
investors about the amount of cash generated by the business after the
purchases of property, buildings, and equipment, which can then be used
to, among other things, invest in eBay's business, make strategic
acquisitions, and repurchase stock. A limitation of the utility of free
cash flow as a measure of financial performance is that it does not
represent the total increase or decrease in the company's cash balance
for the period.

eBay Inc.

Reconciliation of GAAP Operating Margin to Non-GAAP Operating
Margin

Three Months Ended

Year Ended

December 31,

December 31,

December 31,

December 31,

2012

2011

2012

2011

(In millions, except percentages)

GAAP operating income

$

874

$

754

$

2,888

$

2,373

Stock-based compensation expense and related employer payroll taxes

130

112

509

475

Acquisition related transaction expenses

-

1

-

58

Amortization of acquired intangible assets within cost of net
revenues

18

20

78

61

Amortization of acquired intangible assets within operating expenses

83

85

335

267

Restructuring

31

-

31

-

Total non-GAAP operating income adjustments

262

218

953

861

Non-GAAP operating income

$

1,136

$

972

$

3,841

$

3,234

Non-GAAP operating margin

28.5

%

28.7

%

27.3

%

27.8

%

Reconciliation of GAAP Net Income to Non-GAAP Net Income and

GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate

Three Months Ended

Year Ended

December 31,

December 31,

December 31,

December 31,

2012

2011

2012

2011

(In millions, except per share amounts)

GAAP income before income taxes

$

877

$

2,436

$

3,084

$

3,910

GAAP provision for income taxes

(126

)

(456

)

(475

)

(681

)

GAAP net income

$

751

$

1,980

$

2,609

$

3,229

Non-GAAP adjustments to net income:

Non-GAAP operating income adjustments (see table above)

262

218

953

861

Accretion of note receivable

(4

)

(4

)

(23

)

(8

)

Acquisition related items

(1

)

-

2

(73

)

Amortization of intangibles and stock-based compensation for Skype

-

-

-

43

Sale of Skype and transaction related items

-

(1,664

)

(2

)

(1,664

)

(Gain) Loss on divested business

-

-

(118

)

256

Tax effect of non-GAAP adjustments

(81

)

259

(321

)

23

Non-GAAP net income

$

927

$

789

$

3,100

$

2,667

Diluted net income per share:

GAAP

$

0.57

$

1.51

$

1.99

$

2.46

Non-GAAP

$

0.70

$

0.60

$

2.36

$

2.03

Shares used in GAAP and non-GAAP diluted net income per-share
calculation